Placentia, facing fiscal disaster, vows it will not go bankrupt

Jan. 29, 2014

Updated Jan. 30, 2014 10:14 a.m.

1 of 1

Placentia could be California's next over the fiscal abyss if it doesn't raise taxes and/or rejigger its in-house police department to avoid a plunge into municipal bankruptcy. BRUCE CHAMBERS, STAFF PHOTOGRAPHER

Placentia could be California's next over the fiscal abyss if it doesn't raise taxes and/or rejigger its in-house police department to avoid a plunge into municipal bankruptcy. BRUCE CHAMBERS, STAFF PHOTOGRAPHER

The small city of Placentia could be California’s next over the fiscal abyss if it doesn’t raise taxes and/or rejigger its in-house police department to avoid a plunge into municipal bankruptcy.

The bedroom community has been reeling under increasingly-crushing expenses for years, but civic leaders refused to even ask what outsourcing its expensive police department might cost - a matter of civic pride which could ultimately be Placentia’s undoing.

"(P)rojected increases in retirement rates and associated costs will further exacerbate Placentia’s structural budget deficit to the point of possible financial insolvency, absent significant changes in revenues and/or expenditures,” says the analysis.

In short: Placentia has been papering over a structural $1.5 million deficit in its $30 million budget for at least five years, plugging the hole with lucky money (more soberly called “one-time revenues”). Those one-time revenues are gone, and painful hikes in payments to the California Public Employees Retirement System over the next few years threaten Placentia’s “future fiscal viability.”

The hole would deepen to some $4.5 million by 2017-18 if there are no changes, officials said. But rest assured, there will be changes.

“This is a great opportunity to look at the entire operation of city government and make a much more lean machine, perhaps set a new model,” said Mayor Scott Nelson.

In Riverside County, the little city of Desert Hot Springs – which also has its own point-of-pride police department -- has been doing its own shimmy-shimmy dance to try to avoid the distinction of being California’s next city in bankruptcy.

Desert Hot Springs has slashed pay for almost all police and general workers by 22.5 percent (the police union filed a complaint with the Public Employee Relations Board over this), and is making other drastic moves which officials predict will allow it to avoid bankruptcy court.

Note that the Desert Hot Springs police department was consuming 70 percent of the city budget when it declared a fiscal emergency last year. When Placentia’s red flags flew back in 2012, its police department was consuming 37 percent of the budget. Today, it consumes nearly half – 49 percent.

“We’re being pretty proactive,” Nelson said. “Restructuring for the long run is absolutely necessary.”

In one fell swoop, the city could erase the red ink and be firmly in the black: Contracting with the Orange County Sheriff’s Department for law enforcement – as neighboring Yorba Linda has done – would save it some $4.3 million a year.

No one wants to do it. But where city fathers once refused to even entertain this query, they now seem resigned.

“If we want an answer to the question,” said City Administrator Troy Butzlaff, “we have to ask.”

More on that in a minute.

RAISE TAXES?

There are actually several things on Placentia’s potential to-do list.

The city has about $3.7 million in “new revenue opportunities,” says the consultant’s analysis, including:

• Hiking the sales tax by a half-cent, which would generate about $1.9 million;

• Raising the utility tax on electric, natural gas, phone and cable bills from the current 3.5 percent to 5 percent, generating about $1.2 million;

• and/or creating new assessment districts for things like fire suppression, sidewalks and street maintenance, which could generate millions more.

Placentia could save a bit - $670,200 - by asking workers to approve tweaks in how they’re compensated, including:

• Ditching the perk that allows workers to count vacation time as time worked when calculating overtime, which would save about a $156,000 (currently a hot issue over at the OC Fire Authority);

• Paying bilingual, longevity, and other special/premium pay as a flat sum, rather than as a percentage of salary, which would save about $240,000;

• and/or asking police officers and managers to pick up the full employee share of retirement costs, which would save $257,000 – but might well have to be offset with salary increases.

But by far the biggest savings would come if the city decided to outsource.

CONTRACT OUT?

This is called “alternate service delivery”– and the consultant isn’t talking about landscape companies mowing lawns (the city has pretty much done that already). The consultant is talking about outsourcing police work.

In its efforts to keep policing in-house, Placentia has frozen vacant officer positions, reduced by 20 percent the budgets for investigations and support services, and increased the use of part-timers for non-sworn tasks. But it isn’t quite working.

“Despite ongoing expenditure reduction measures, costs for police services are expected to rise even higher over the next five years,” the analysis says. “This is due both to increases in PERS retirement rates, but also to a mandatory upgrade to the city’s communications and dispatch system...Unless Placentia is able to increase revenues substantially, eliminating every other department, program or service might not be sufficient to close the resulting budget deficit in FY 2017-18.”

Yikes.

“While the department is currently able to perform basic services, concern has been expressed that continued financial constraints will ultimately result in a degradation of service to the community, an inability to recruit and retain qualified personnel, and a less professional, effective organization,” it says.

Placentia could save $4.3 million by contracting with the Orange County Sheriff’s Department, and could save lesser amounts by taking a less dramatic route, such as joining forces with nearby Fullerton and Brea.

Either way, the city should suck it up and issue a request for proposals for law enforcement services, the consultant advises (in slightly less blunt language).

“Indeed, if the city does not make what will surely be very difficult policy decisions and take action to bring revenues and expenditures into balance at the earliest possible opportunity, the consequences could be extremely serious,” the analysis says.

FATIGUE

One could argue that it all began in 2000, when Placentia created OnTrac to orchestrate a multimillion-dollar effort to relieve traffic congestion at 11 rail crossings (and silence those infernal, dead-of-night train whistles). It was supposed to be a regional project to sink fivemiles of tracks into a trench, but OnTrac had trouble persuading its neighbors to join. In the end, OnTrac sucked down $54.4 million, forced Placentia to borrow heavily, and resulted in conflict-of-interest charges for several former city officials. OnTrac was eliminated in 2006, but its scars remain with the city today.

In addition, Placentia has had to deal with what other cities are dealing with – slumping sales-tax revenues, flat property-tax revenues, the loss of redevelopment dollars, etc. And there’s the (perhaps ill-advised) borrowing it did to finance increased pension benefits about a decade ago, after it followed the herd and hiked the police retirement formula to3 percent at 50.

“The Placentia organization is showing signs of significant organizational stress and fatigue… low morale, low trust in the city’s elected and appointed leadership, high anxiety over the city’s future financial uncertainty…” the consultant writes.

Placentia has some other ideas to boost revenues – including a controversial billboard proposal – which may or may not be part of the final plan.

It’s going to be extremely interesting to see how the people of Placentia react to all this.

Will the we-hate-taxes! types, which O.C. is so famous for, draw a line in the sand? Or will folks be willing to pay more to keep their own police department?

Asking for bids on police services “still isn’t a favorite thing, and you’ll find we’re going to try do everything we can not to go that route,” said Mayor Nelson. “But Management Partners (the consultant) recommended that we do it, and to be the best council we can be, we have to explore all options. We have an obligation to the taxpayers to do whatever we can.”

Butzlaff, the city administrator, said that Placentia is also gazing inward, trying to consolidate management and other positions (there has been a bit of an exodus lately, so those vacant positions will help).

Right now, the city wants to educate folks about what’s happening, and to get their ideas for fixes, Butzlaff said.

Will Placentia be able to avoid bankruptcy court?

“Absolutely,” Nelson said. “It’s not even in the equation at this time.”

Butzlaff agreed. “By taking action now, the city sets itself up to achieve the sustainability we need,” he said.

If you can’t attend the community meeting -- 6:30 p.m. Wednesday, February 12, at the Backs Community Building, 201 N. Bradford Avenue -- make sure the city knows how you’d like it to proceed. You can submit comments, suggestions and general fulminations online from this page: placentia.org/index.aspx?nid=646

Management Partners is a consulting firm “specializing in helping government leaders improve their organizations,” according to its web site. Its analysis cost the city $33,900. An excerpt:

“Retirement rates for both safety and miscellaneous (general) plans will increase substantially over the next 7 to 8 years. Rates will peak at a high of 62% of payroll for safety members and 18% of payroll for employees.”

Currently, Placentia pays 49.161percent of payroll for safety workers, and 10.781percent for general workers.

User Agreement

Keep it civil and stay on topic. No profanity, vulgarity, racial
slurs or personal attacks. People who harass others or joke about
tragedies will be blocked. By posting your comment, you agree to
allow Orange County Register Communications, Inc. the right to
republish your name and comment in additional Register publications
without any notification or payment.